Individual Voluntary Arrangement (IVA)

Definition of Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement between an individual and their creditors. It allows the individual to repay their debts over a predetermined period, typically five years. An IVA is often used as an alternative to bankruptcy and is designed to provide a manageable way for debtors to pay off their financial obligations while protecting some of their assets.

Examples

Example 1: Reduced Monthly Payments: John has accumulated debts amounting to £50,000. His creditors agree to an IVA that allows him to pay £500 per month over five years, resulting in a total payment of £30,000. Under the IVA, John’s remaining debt of £20,000 is written off once he fulfills his IVA obligations.
Example 2: Asset Protection: Sarah owns a home worth £200,000, with debts totaling £100,000. By entering into an IVA, Sarah is able to keep her home and pay off her debts with affordable monthly payments based on her disposable income.

Frequently Asked Questions (FAQs)

What are the eligibility criteria for an IVA?

Eligibility criteria for an IVA typically include having debts over £6,000 (although this can vary), having at least two different creditors, and having a regular income or assets to contribute towards the debt repayments.

How long does an IVA last?

An IVA usually lasts for five years, but the duration can be adjusted depending on individual circumstances and agreements with creditors.

What debts can be included in an IVA?

Most unsecured debts can be included in an IVA, such as credit card debts, personal loans, and overdrafts. Secured debts like mortgages and car loans are not included.

How does an IVA affect an individual’s credit rating?

Entering into an IVA will have a negative impact on the individual’s credit rating and will remain on their credit file for six years from the start date of the IVA.

Can an IVA be extended?

Yes, an IVA can be extended beyond the initial agreed period if both the debtor and creditors agree to an extension due to unforeseen financial difficulties or other reasons.

Can an IVA be cancelled once it has started?

Yes, an IVA can be cancelled if the debtor fails to keep up with the repayments or if they voluntarily opt out. However, this could lead to further legal action from creditors.

Bankruptcy: A legal proceeding involving a person or business that is unable to repay their outstanding debts.
Debt Management Plan (DMP): An informal agreement between a debtor and their creditors to pay off debts over an extended period.
Insolvency: A financial state where an individual or business is unable to meet their debt obligations.
Credit Rating: A score assigned to individuals indicating their creditworthiness based on their financial history and current credit status.
Creditor: A person or institution to whom money is owed.

Online Resources

Suggested Books for Further Studies

“Credit Repair Kit for Dummies” by Steve Bucci
“Get Out of Debt with the IVA Bible” by Nick Blaikie
“The Meaningful Money Handbook: Everything you need to KNOW and everything you need to DO to secure your financial future” by Pete Matthew
“Solve Your Money Troubles: Strategies to Get Out of Debt and Stay That Way” by Amy Loftsgordon

Accounting Basics: Individual Voluntary Arrangement (IVA) Fundamentals Quiz

### What is an Individual Voluntary Arrangement (IVA)? - [ ] A method for businesses to manage taxes. - [x] A legally binding debt repayment agreement between an individual and creditors. - [ ] A type of bank loan. - [ ] A financial investment plan. > **Explanation:** An IVA is a formally structured agreement tailored to help individuals repay debts in a manageable way. ### How long does an IVA normally last? - [ ] 1 year - [ ] 2 years - [ ] 4 years - [x] 5 years > **Explanation:** An IVA typically lasts for five years, during which the debtor makes consistent payments as per the agreed terms. ### Which of the following debts can be included in an IVA? - [x] Credit card debts - [ ] Mortgages - [ ] Car loans - [ ] Payday loans > **Explanation:** IVAs can cover most unsecured debts like credit card debts, but not secured debts like mortgages or car loans. ### What happens if an individual fails to keep up with IVA payments? - [ ] Nothing happens. - [ ] The IVA automatically renews. - [x] The IVA may be cancelled, and creditors may take further action. - [ ] The payment duration is shortened. > **Explanation:** Defaulting on IVA payments can lead to the arrangement being cancelled and creditors potentially taking further legal action. ### How does an IVA impact an individual's credit rating? - [ ] It improves credit rating. - [ ] It has no effect. - [x] It negatively impacts credit rating. - [ ] It depends on the duration of the IVA. > **Explanation:** An IVA leads to a negative impact on the individual’s credit rating and remains on the credit file for six years. ### Can an IVA include secured debts? - [ ] Yes - [x] No - [ ] Sometimes - [ ] Only with creditor approval > **Explanation:** IVAs cannot typically include secured debts such as mortgages or car loans. ### What is the initial step to set up an IVA? - [ ] Making individual creditor payments. - [x] Contacting an insolvency practitioner. - [ ] Filing for bankruptcy. - [ ] Paying off part of the debt. > **Explanation:** Setting up an IVA requires the assistance of an insolvency practitioner who helps mediate and establish the agreement. ### What is the purpose of an IVA? - [ ] To invest money. - [x] To manage and repay debts. - [ ] To purchase property. - [ ] To open a bank account. > **Explanation:** An IVA is intended to help individuals manage and repay their debts through an agreed-upon schedule. ### How can an IVA protect assets? - [x] By allowing manageable debt repayments while keeping certain assets. - [ ] By immediately paying off all debts. - [ ] By selling all assets. - [ ] By transferring debts to another party. > **Explanation:** An IVA provides a structured way to pay debts, typically allowing individual asset protection as part of the agreement. ### Who oversees the management of an IVA? - [ ] The debtor's creditors directly - [ ] Financial advisors - [x] An insolvency practitioner - [ ] Government agencies > **Explanation:** An insolvency practitioner oversees the management of an IVA, ensuring compliance and mediating between debtors and creditors.

Thank you for exploring the intricacies of an Individual Voluntary Arrangement (IVA) and taking our detailed quiz. Continue to deepen your financial knowledge and make informed decisions!